US Dollar Index Price Forecast: Bears prevail with the 200-day SMA capping rallies

The US Dollar Index (DXY) has seen limited gains on Wednesday and is unable to surpass the 200-day Simple Moving Average (SMA) near 99.00, thus maintaining a predominantly bearish trend. Investors are anticipating the release of US Personal Consumption Expenditures (PCE) Price Index data later in the week, along with the Jackson Hole summit, before making significant USD investment decisions.

Strategists at BNY Mellon indicate that overall U.S. assets holdings have stabilized, with non-U.S. domiciled investors decreasing their exposure. They also note that FX hedges, measured by cross-border dollar holdings, have remained largely unchanged over the past two weeks. Moving forward, analysts advise monitoring dollar cash flows, FX hedging, inflation expectations, and US data, stating that a sustained deterioration in these signals would confirm a shift from tactical diversification to a reduction in U.S. exposure.

The DXY is struggling to break above the 200-day SMA, currently at 99.15, which continues to support the bearish trend. Momentum indicators, such as the Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD), remain in bearish territory. A decisive break above the 200-day SMA, between 99.25 and 99.40, would bolster bullish sentiment and focus on the August 18-19 high near 99.70.

Conversely, a decline below the late May lows around 98.70 could reignite bearish sentiment, potentially targeting the May lows near 97.65.